Why 401 (k) investors ignore 'keep cool' advice when markets tank

Published On Sep 7, 2024, 8:00 AM

During recent market downturns, particularly in early August 2024, participants in 401(k) plans have rapidly increased their trading activity, often selling off stocks to shift investments into safer options like bonds and money markets. Despite advice to 'stay cool' and maintain their strategies, many investors panic during market drops, driven by recency bias and loss aversion. This behavior leads them to miss rebounds in the market, as seen with the S&P 500's fluctuations around the same dates. Financial professionals suggest long-term strategies such as automatic investing and careful rebalancing to mitigate these impulsive actions.